Commentaries

Engaging Investors in Social Responsibility — International Philanthropy

December 03, 2012

Valentina Lodola is currently in the M.S. Fundraising and Grantmaking program at NYU. She holds a bachelor’s degree “Laurea Magistrale” in International Law from Universita’ Cattolica del Sacro Cuore di Milano. She served as a volunteer at Odanadi Seva Samsthe, a small organization based in Mysore, southern India, that rescues and rehabilitates individuals who have been trafficked, prostituted, enslaved and abused. Valentina is fluent in Italian and her philanthropic interests lie in human trafficking and women empowerment.

The UMAN Foundation Giving and Innovating is an Italian foundation formed on February 29, 2012 with the aim of promoting a new culture of giving and the ability of promoting human development and innovation in social enterprise throughout Italy and Europe. The UMAN Foundation unveiled its philanthropic goals to businesses, a wide plethora of institutional and social actors, and the main protagonists of Italian and global philanthropy with an event on October 9, 2012 in Rome.

One of the main goals of UMAN Foundation is to engage Italy, my native country, in international philanthropy and to promote human development by promoting and facilitating positive and ethical bonds between those who possess great economic resources, and those who can transform those resources into concrete projects for innovative social enterprise in Italy and in developing countries. For this to occur, funds are needed to develop both the newly formed foundation and its mission in Italy and abroad. Unfortunately, the global economic crisis and especially the financial crises in Spain, Greece and Italy, poses an urgent obstacle to acquiring funds.

The so-called “spending review”, a bill regarding urgent provisions for the review of public spending, will deeply influence the Italian third sector. This bill will impinge upon the economy and the intervention of non-profit organizations and foundations in public policy and aid. The bill, a result of the economic crisis, diverts all available funds from the government’s programs to the rehabilitation of public debt. This reduces the government’s ability to help and the potential assistance that could come from the third sector to help developing initiatives aimed at improving the quality of life of citizens especially in those grey areas where government intervention is absent.

Regardless of market failures and the difficulties of an overly bureaucratic and sometimes inefficient welfare state, there is still room for innovation and social practices that generate human values in the third sector that are not immediately convertible into money but valuable nonetheless. In fact, there are new ways and instruments to engage financial tools with social values creation—through Social Impact Investments and Social Bonds. The emerging field of impact investing and investors is laying the foundation for a new kind of marketplace in which financial and social returns are closely linked.

Socially conscious investors such as private equity and public pensions, foundations and major corporations, retail investors, governments and community banks have already started believing in social finance through Social Impact Investments in the United States. These kinds of investments are meant to generate a measurable social impact with a non-speculative financial return for the investors. Social Impact Funds involve both emerging and traditional markets with a lower return of capital than the rate of return on traditional financial markets.

Although a lower return of capital might not sound appealing in the world of finance, these funds are growing thanks to a new kind of investor seeking a different kind of return: social impact. Case in point, the Rockefeller Foundation launched the Global Impact Investment Network in 2007 and now counts more than 200 funds all over the world. These funds are like fresh air for global finance.

Social investors seek to put markets to work for millions of people around the globe who struggle with hunger, homelessness, disease, and environmental degradation. Investments are made into companies, organizations, and funds with the intention to generate measureable social and environmental impact along with a financial return. The scope of social investing is broad, including investments in both emerging and developed markets. For example, Root Capital, a nonprofit social investment fund that invests in economically sustainable cooperatives is helping women widowed by the genocide produce coffee in Rwanda.

Through Social Impact Bonds, public/private initiatives use philanthropic and private capital to scale proven, effective social services (e.g. prisoner re-entry programs) thus enabling the government to provide immediate social aid while saving enough money to repay investors down the line. Because investors are only repaid if the program succeeds, social impact bonds allow governments with tight budgets to experiment with evidence-based, outcome-oriented solutions to social challenges without putting taxpayers' money at risk.

UMAN Foundation believes that it is time for Italy to be a part of this movement that originated overseas by joining the Global Impact Investment Network. UMAN Foundation will serve as the bridge between Italy and America with the help of an international Advisory Board with philanthropic figures such as Kerry Kennedy, John Podesta, Pamela Hartigan, Bunker Roy and Muhammad Yunus. Through social investment, UMAN Foundation hopes to jumpstart social finance in Italy, making it a global change-maker too.